Clampdown on payday lenders

The government has announced that payday lenders and other providers of short-term credit will face much tougher regulation when a new watchdog body, the Financial Conduct Authority, starts work next year.

Ministers have promised that payday lenders will face more rigorous checks before they can set up in business and there will be more resources devoted to investigating their tactics once they start lending.

If customers are ripped off, the FCA will have the power to impose unlimited fines - compared with the maximum penalty of £50,000 which the Office of Fair Trading can impose at the moment.

The announcement came with the publication of the Financial Services Bill, which confirms that the new FCA will take over responsibility for policing consumer credit.

The FCA also assumes the consumer protection role of the current Financial Services Authority, charged with trying to make sure that scandals such as pension, endowment and PPI mis-selling don't happen in future.

Is it illegal to pay in cash?

The nation's top tax collector, Dave Hartnett, has said, "Every time someone pays cash in order not to pay VAT, the nation gets diddled."

In a Telegraph interview he's reported to have laid down that householders have a duty to ensure that other people do not evade paying their share of tax.

Plainly the remarks are directed against builders and other traders who ask for cash so that they can avoid VAT and income tax, which is wrong.

But some people might be worried that they are actually breaking the law if they pay in cash.

Just to clear this up, I checked with HMRC, the tax office, and they say, "it's up to you whether you pay by cash or cheque."

Also: "it's entirely the responsibility of the trader to declare the income they receive".

So it's fine pay in cash if you want to.

Incidentally, the UK has the highest threshold for VAT-registration in Europe. Businesses don't have to start charging it until they are taking in £73,000 a year.

It's quite possible that a small trader will not be required to put VAT on your bill.

Hester's £500,000 tax bill

Obviously, Stephen Hester will have to pay tax on his £963,000 bonus from RBS, but how much?

The bonus is in shares, but it is still liable for income tax, payable when the shares are handed over in 2013 and 2014.

So Hester is likely to have to pay 52% tax on the value at that time, made up of 50% income tax and 2% National Insurance.

Assuming the value will still be around £963,000, the tax charge will be £500,760.

He has to hold on to the shares for a period. Then, if he sells them, he is liable for Capital Gains Tax on any gain in value since the shares were handed over.

The CGT rate would be 28%.

£379 saving from £10,000 allowance

A basic rate taxpayer would save £379 a year from an early move to Nick Clegg's £10,000 personal allowance - the amount you can earn before income tax kicks in. 

That's £31.58 a month or £7.29 a week.

In addition, of course, those with incomes under £10,000 wouldn't have to pay income tax at all.

Here's a table, kindly supplied by the tax experts at the CIOT, which shows how the calculation is done.

Year	Personal allowance	Amount saved by basic rate taxpayer compared to previous	Amount saved by basic rate taxpayer compared to 2010-11
2010-11	£6475
2011-12	£7475	200	200
2012-13	£8105	126	326
??	£10000	379	705

Courtesy of the Chartered Institute of Taxation

Clegg's £10,000 personal allowance

What would it cost to bring in a £10,000 personal tax allowance in 2013-14?

It could be over £8bn.

(I'm leaving on one side the possibility of applying it from April 2012, though that is technically possible.)

The Institute for Fiscal Studies said bringing in the £10,000 threshold for tax from 2015 would have cost £4.1bn on top of the normal inflation increases in the allowances which would kick in over the years up until then.

The back of the envelope calculation from the IFS today is that the cost of early implementation could be double that.

The original calculation assumed that higher rate taxpayers would only be allowed to gain as much as standard rate taxpayers. (Just pushing up their personal allowance and not making any other changes would give them twice the gain.)

On the other hand, removing all potential benefit for higher rate taxpayers would take a billion off the 2015 cost, so perhaps £2bn off the 2013 cost.

The Chancellor has form with this tactic, having fiddled with the threshold for higher rate tax to make sure those in the 40% bracket didn't cash in unfairly on previous increases in the personal allowance.

The IFS says that 500,000 more people could be brought into higher rate tax if the £10,000 allowance was brought in with no benefit going to the better off.

Another quirk of this reform is that it cuts across the Chancellor's plan to remove Child Benefit from families with higher rate taxpayers.

Any family with a taxpayer drawn into the 40% bracket as a result of the £10,000 allowance would lose the benefit, saving the Treasury £200m a year -- according to the IFS.

Of course, how George Osborne would manage an early introduction of the £10,000 allowance remains a mystery.

We'll only find out whether he'll do it, when - and how he'll pay for it -- in the Budget.

Is there a jump in debt?

How can family unsecured debts be up 48%, when banks say families are battening down the hatches, paying down debt and running down savings?

The 48% comes from Aviva, who's latest Family Finances Report says that the typical family's debt, excluding mortgages, has increased from £5,360  in January 2011 to £7,944 in January 2012.

Against that the British Bankers Association says that unsecured lending - credit cards, personal loans and overdrafts - contracted by 1.4% in 2011. And customers used what cash they had to pay down debt and cover essential spending.

The thing is - both findings can be right.

Bank customers are being careful, yes. That what happens after recessions.

But families have other commitments: energy bills, phone bills, council tax, food and so on. These have either been rising or become a heavy burden.

Some families are in the red with the gas and electricity supplier, the mobile phone company, the council or family and friends - and those debts might be increasing.

They might turn to a payday lender to tide them over the month, a method of borrowing which can mount up very quickly.

None of this shows in the BBA's totals, but it certainly feels like debt if you have it.

Dangers of axing Child Benefit

Anyone who wants to understand the implications of the government's plan to axe Child Benefit for higher rate taxpayers should read this note from the Low Income Tax Reform Group (plus read my previous note here).

It points out the "huge administrative complexity" involved in introducing a tapering system to prevent families suddenly losing thousands of pounds after a small increase in income takes them over the higher rate threshold.

It warns that "independent taxation could become a thing of the past" because the benefit claimant, usually the mother, could have to be assessed alongside a partner paying 40p tax.

It says the new system could become a "tax on marriage" because a single mother would have to think twice before starting a relationship with a higher rate taxpayer.

And it warns of the danger of having to claw back overpayments of Child Benefit because it may only become clear that a family has a higher rate taxpayer after months have gone by.

Now that the higher rate threshold is being reduced to pay for increases in the personal allowance, many taxpayers have no idea that they are joining the 40% club.